Tuesday, September 04, 2007

Class Counsel Fees

If class counsel is alleged to have blown a settlement worth $40 million dollars, what is an appropriate award of attorney’s fee for class counsel? That question split a panel of the Ninth Circuit in Steiner v. ABC, 2007 WL 2460326 (9th Cir. Aug. 29, 2007).

As explained by Judge Kleinfeld’s dissent:

Defendants used copyrighted music in television soap operas without permission. After successfully suing on behalf of an individual, class counsel brought a class action on behalf of all the other copyright holders. There was no serious question about liability, and damages were subject to a statutory minimum per use. The practical risk, as described by the district court, was not losing, but rather "protracted litigation against very good litigators."

The risk did not materialize. With no depositions, no motions to dismiss or for summary judgment, no opposition to class certification, and no trial, class counsel got defendants' agreement to a $25.4 million settlement. That is not to say that counsel did not have to do a great deal of very sophisticated, specialized, and difficult legal work to get the settlement. They did. At rates for attorneys ranging from $275 to $600 an hour, and for non-lawyers from $130 to $175 an hour, at that point their time was worth about $554,000.

But the "major" music companies that owned 85% of the music at stake in the litigation were not satisfied with the $25.4 million settlement. They objected to the settlement. With no depositions, contested motions, or trial, they got it more than doubled, to $65 million. They went through a two day mediation with the defendants in which class counsel had no substantial role. Their total billings came to something over $900,000, for obtaining the additional $40 million.

The district court awarded a stunning amount of money: 25% of the 25 million, finding class counsel “achieved excellent results and faced a good deal of risk.” Plaintiff major studios argued that “class counsel did not achieve excellent results, because they negotiated a facially inadequate initial settlement of $25.4 million, as demonstrated by the Majors' ability to negotiate a final settlement of $65 million.” The court of appeals, however, held that “The district court… addressed this contention and made findings to the contrary, which were not clearly erroneous. Specifically, the court found that the Majors were able ‘to extract a much more attractive settlement" because of the "much greater bargaining power’ that they brought to the table, not because the original settlement amount was inadequate. The court also found that the Majors chose to build on the initial settlement agreement negotiated by class counsel, instead of opting out of the class and pursuing independent litigation, because the initial settlement amount ‘obviously had value to the Majors.’"

Judge Kleinfeld dissented:

In the case at bar, the fee award is 25% of the $25 million settlement class counsel negotiated before the objectors got it set aside. While 25% of a common fund is a "starting point," 25% may be "inappropriate," requiring the court to consider "all the circumstances." A 25% contingent fee is one thing in a $900,000 personal injury case, and quite another when the percentage is applied to $25 million. And quite another indeed, where the $25 million has been rejected as inadequate. If the district court applied the 3.65 multiplier approved in Vizcaino to class counsel's time and rates, class counsel would receive 3.65 times the lodestar amount of $554,000, or a fee of about $2 million. That might arguably have been a reasonable approach, but it was not used.


Anonymous said...

The class counsel's initial settlement was pulled off by establishing a clear acceptance of liability on the part of the defendant. The major music companies built their "spoiler" tactic on that platform. I'm surprised the fee wasn't applied to the full settlement.

William Patry said...

Indeed, that would have sent the dissent to the hospital I fear.